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Design of the Local Utility Project Aggregator (LUPA)

Design of the Local Utility Project Aggregator (LUPA)

Overview: Convergence awarded a feasibility study grant to Allotrope Partners for the design of the Local Utility Project Aggregator (LUPA), which will support the development of a blended finance solution targeting Sustainable Development Goal 7–Affordable and Clean Energy in the Philippines.

The Philippines faces a complex energy challenge; as the demand for energy continues to climb, supply tightens and energy prices rise. The cost of transmitting power and transporting fuel to the 7,000+ islands of the Philippine archipelago has led to the Philippines having the highest electricity rates in Asia. LUPA aims to reduce the Philippines’ dependence on unsustainable and expensive energy sources such as coal and diesel, advancing the government’s goals to transition 35% of its energy mix to renewable energy (RE). A key component of achieving this goal is supporting local utilities to explore investment into RE assets and addressing financing barriers with innovative solutions.

Convergence’s feasibility study grant will enable Allotrope Partners, an international clean energy advisory firm specializing in emerging markets and technologies, to explore the feasibility of a bankable structure for LUPA, a proposed US$150M blended finance vehicle that will bring together Electric Cooperatives (ECs) in the Philippines to invest in and own renewable energy projects.

Design question and learning potential for the market: How can a fit-for-purpose financial structure be developed to empower local Electric Cooperatives (ECs) to meet renewable energy targets by investing in and owning renewable energy projects in the Philippines?

Two aggregation models will be explored as part of the feasibility study: 1. Aggregate Finance Structure: a blended debt facility to finance multiple renewable energy projects developed for individual ECs. Project debt would be sourced from LUPA, and equity for each individual project would be contributed by the EC developing and owning that specific asset; and 2. Aggregate Project Structure: ECs share equity ownership & offtake rights to the production of a project larger than any one EC would need individually. For example, 10 individual ECs collectively invest in a single 100MW project, two 50 MW projects, or four 25MW projects. Commercial and concessional debt, along with guarantees and/or grants, will be used to finance the project debt.

The aim with either structure is to expand renewable energy opportunities for ECs and the communities they serve, through an aggregation model, which builds on the direct interest shown by ECs to own and operate renewable energy assets and catalyze additional local market financing from local and regional financial institutions.